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Taking a random sampling of 2Q GDP forecasts for Bloomberg we can see the uncertainty facing the release schedule for 7/30. Weaker than expected trade and and inventory data are the primary culprits behind the uncertainty, and I imagine more banks will revise down their forecasts as we move closer to the release. Presently, I believe the market will be lucky to see the q/q annualized growth rate exceed 3.0%, and anticipate the release will come in closer to 2.7%.

Over the past two weeks new uncertainties have begun pouring into the markets, like the deluge of rain currently striking the west coast—I spent part of last week in Los Angeles. However, unlike what’s happening over the west coast, the storms investors faced were mostly avoidable. It all began with legitimate concerns over tightening Chinese monetary policy, but quickly moved to the avoidable with doubts over the reconfirmation of Chairman Bernanke, and the potential impact of President Obama’s imprudent policy agenda toward the financial sector. Barring these uncertainties, this week’s full calendar of economic and earnings data should help shed some light on the health of the U.S. economy and the sustainability of the current recovery.

On the economic side, this week’s main event should be Wednesday’s FOMC announcement, where the fed should continue making incremental changes to the statement bringing us closer to tightening—which I still believe is a ways off. However, the meeting may be trumped by news of Chairman Bernanke’s reconfirmation, which could take place as early as this week. Despite what is turning into a bit of a political circus I do expect Mr. Bernanke will be reconfirmed.

Moving away from the Fed the market will be focusing on the first estimate of fourth quarter GDP on Friday, and critical housing data being released throughout the week. GDP growth should exceed 4%, but many will argue over the sustainability of this growth, which is being heavily supported by accommodative fiscal and monetary policies. Housing data will likely be mixed with December’s existing home sales coming under some pressure after the would-be expiration of the first time home buyer tax credit.

On the earnings front we should be hearing from almost a quarter of the S&P 500 with some big names including Amazon (AMZN), Apple (AAPL), AT&T (T), Boeing (BA), Caterpillar (CAT), Chevron (CVX), and Raytheon (RTN), Research In Motion (RIMM),Verizon (VZ), Yahoo (YHOO). Other items that will likely drive headlines this week include President Obama’s State of The Union Address, the World Economic Forum in Davos, and an Apple product release (a tablet computer?). Finally, the central banks of Japan (Monday & Tuesday) and New Zealand (Thursday) are schedule to meet next week, and could drive some headlines

Here is the rest of this week’s US calendar:

Monday, Jan. 25

10:00 a.m. EST: December’s Existing Home Sales (Risk: Negative, Market Reaction: Significant): What would have been the expiration of the first time home buyer tax credit in November could place some downward pressure on December’s existing home sales. The original rush of home buyers, looking to take advantage of what was an expiring program, have already finished their purchases. The extension/expiration of the program should eventually help stoke sales, but there will likely be a delay before a new group of home buyers enters the market. I should also note that increased foreclosure activity during the month, combined with what I anticipate will be weak sales, could increase the inventory of homes for sales. I expect we could also see some weakness in existing home values. The current Bloomberg consensus forecast is for existing home sales to decline to 6.1 million in December from 6.5 million a month prior. Recently, home buyers have been more enticed to purchase existing homes over new homes as they tend to be generally cheaper. I should also note that the index of pending home sales plunged -16.0% in November, which is an ominous sign.

10:30 a.m. EST: January’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, but tracks manufacturing activity within the Dallas Feds jurisdiction. Last month’s survey suggested, “Texas factory activity was flat in December…. The production index, a key indicator of state manufacturing conditions, came in close to zero in December, suggesting output held steady after growing in November for the first time since July 2008. All indexes for future activity strengthened substantially in December, suggesting a more upbeat six-month outlook. The majority of respondents expect increases in production, new orders and shipments in the next six months. The future business activity index climbed to its highest level in nearly three years, and 41%”

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales rose 0.9% last week on a yearly basis.

9:00 a.m. EST: November’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): It will be interesting to see what impact the would-be expiration of the first time home buyer tax credit will have on November’s housing prices. Will sellers looking to sell their homes prior to the expiration have lowered prices or would a surge of buyers on the market help buoy home prices? In October the Case Shiller Home Price Index ended five consecutive months of gains, lending some credence to the argument home sellers be lowering prices to liquidate their homes.

10:00 a.m. EST: January’s Consumer Confidence (Risk: Neutral, Market Reaction: Moderate): Consumers continue to face a barrage of headwinds and tailwinds, which makes forecasting a rather volatile consumer confidence index a tough task. Nevertheless, I anticipate that tailwinds will have a slight edge this month marginally pushing up the index. The current Bloomberg consensus forecast is for a reading of 53.5, versus 52.9 in December. Most of this index’s strength has been coming from its expectations component, while the present conditions index has moved back near interim lows. This index tends to be closely correlated with ABC News comfort index and the Reuters/University of Michigan consumer sentiment index.

10:00 a.m. EST: November’s FHFA House Price Index (Risk: Neutral, Market Reaction: Marginal): Unlike the Case Shiller Index the FHFA House Price Index rose by 0.6% on a monthly basis in November. However, like the Case Shiller Index, it will be interesting to monitor what impact the would-be expiration of the first time home buyer tax credit will have on November’s housing prices.

10:00 a.m. EST: January’s State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report in December, “This month’s up-tick in global investor confidence stemmed largely from an improvement in the mood in Asia, where risk appetite rose to an eight-month high,” commented Froot. “Elsewhere portfolio reallocations were modest. With three of the four indices over the neutral level of 100, institutions are continuing to add to their risky asset positions, but at a slower pace than was evident earlier in the year. Investors will be watching for signs of renewed economic growth, and well-designed exit strategies from policy makers, before making more significant reallocations towards risk in 2010.”

10:00 a.m. EST: January’s Richmond Fed’s Survey of Manufacturing (Risk: Neutral, Market Reaction: Marginal): The survey hit a soft patch last month after seven months of expansion. According to the report, “Manufacturing activity in the central Atlantic region pulled back in December from positive territory after expanding during the previous seven months, according to the Richmond Fed’s latest survey. All broad indicators of activity — shipments, new orders and employment — landed in negative territory. Most other indicators also suggested additional softness. Capacity utilization turned negative following seven months of improvement, while backlogs held steady. Vendor delivery times were virtually unchanged, while manufacturers reported slightly quicker growth in inventories.”

Wednesday, Jan. 27

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tend to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Applications rose 9.1% last week after rising 14.3% a week prior. Refinance applications jumped 10.7%, while purchase applications rose 4.4%. A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages. However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months. The 4wk moving average of all mortgages was down 1% through the week of January 15th.

10:00 a.m. EST: December’s New Home Sales (Risk: Negative, Market Reaction: Significant): Unlike, existing home sales, new home sales could experience a bit of a bounce in December after several months of relatively low readings. However, the sharp drop-off in pending home sales(-16% in November) combined with what would have been the expiration of the first time home buyer tax credit could place some pressure on the index, despite a rather optimistic consensus forecast. It is true that the tax credit had a larger impacted on existing, but I anticipate there should be at least a marginal impact. The current Bloomberg consensus forecast for new home sales is 372K in December, versus 355K in November.

10:00 a.m. EST: Timothy Geithner, the U.S. Treasury Secretary, testifies before House Oversignt Committee on AIG

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week’s report showed a decline of -0.4 million barrels versus a rise of 3.7 million barrels a week prior.

2:15 p.m. EST: FOMC Announcement (Risk: Neutral, Market Reaction: Significant): It is hard to say whether the outcome of this meeting or the situation around Mr. Bernanke’s reconfirmation will garner more headlines in the press. With that said I expect no change in policy, and nothing more than incremental changes to the FOMC’s statement (i.e. acknowledging recent improvements and highlighting risks). I should also note that given this is the first meeting of 2010 the Fed will have a new voting rotation. For those interested the new voters will be Boston’s Eric Rosengren, Cleveland’s Sandra Pianalto, St. Louis’ James Bullard, and Kansas City’s Thomas Hoenig. As a side note, if Chairman Bernanke was not to be reconfirmed and Vice-Chairman Donald Kohn was to take his place, Kohn’s term is set for renewal by President Obama in June, which in theory could create another circus. I personally expect Mr. Bernanke will be reconfirmed, but sadly I don’t have a vote.

9:00 p.m. EST: President Obama delivers his State of the Union Address to Congress

Thursday, Jan. 28

8:30 a.m. EST: December’s Durable Goods Orders (Risk: Neutral, Market Reaction: Moderate): Stronger aircraft orders during the month should help bolster the index after rising 0.2% in November. The current Bloomberg consensus is for an increase in December’s durable goods orders of 2.0%—I believe this may be slightly optimistic.

8:30 a.m. EST: December’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has been generally trending up over the preceding ten months, and could show a marginal improvement in December from its reading of -0.32 in November.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose an unexpected 36K last week to 482K, after rising 11K a week prior. The four week moving average rose to 448,250 from 440,750. An improving trend in initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, given the still elevated number of claims the job situation will get worse before it gets better. The current Bloomberg consensus is for an initial jobless claims reading of 440K on Thursday.

11:00 a.m. EST: Kansas City Fed’s Manufacturing Survey (Risk: Neutral, Market Reaction: Marginal): Manufacturing growth remained positive, but moderate somewhat in the region in December. According to the survey, “Growth in Tenth District manufacturing activity moderated somewhat in December, and producers were slightly less optimistic about the months ahead, with few planning major capital expenditures. Price indexes remained mostly stable.”

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet fell from a record $2.274 trillion to $2.233 trillion last week. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Jan. 29

8:30 a.m. EST: First Estimate 4Q09 GDP (Risk: Neutral, Market Reaction: Significant): The current Bloomberg Consensus forecast is for fourth quarter GDP growth to come in at 4.5%, versus 2.2% a quarter prior. Personally, I believe this forecast may be slightly too optimistic, and expect the number to be closer to 4%. Slower inventory liquidations combined with a jump in consumption should prove to be the quarter’s biggest growth engines. While on the surface the number will look positive, questions will be asked about the sustainability of this growth. A portion of this growth is still being supported through accommodative fiscal and monetary stimulus, which will eventually begin to wane. For more on this please see my piece ‘Looking at 2010’s Outlook and Risks’. I expect GDP growth to peak in either 4Q09 or 1Q10 then gradually diminish throughout the remainder of the year, albeit remaining positive. In terms of the Fed, relatively tepid growth in a post recession period combined with ultra-high unemployment and subdued inflation should convince the fed to remain on hold through most of 2010. After the release, don’t be surprised to see a barrage of experts analyzing the details for clues over the sustainability of this growth—you know where I stand.

*9:45 a.m. EST: Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the ISM. *I should note that the Chicago PMI is released several minutes early to subscribers, so the market could begin reacting to the data as early as 9:42 a.m. The Chicago PMI is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could impact trading. The current Bloomberg consensus forecast is for a reading of 57.0, versus to 60.0 in December. The PMI covers both the manufacturing and non-manufacturing sectors.

9:55 a.m. EST: January’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Moderate): January’s final consumer sentiment release will likely be mostly unchanged from the preliminary reading of 72.8. The index has been trending up, but concerns over the job market and other adverse factors are limiting the upside. The current Bloomberg consensus forecast is for a final reading of 73.0.

Retailers are not dreaming of a white Christmas. Whether a snowstorm impacting the Mid-Atlantic region this weekend will impact an arguably lackluster holiday shopping season is yet to be seen. But, bad weather does have a tendency of keeping would be shoppers home, however, these shoppers will still have access to online stores, but given the proximity to the holiday, would likely be forced to dish out expedited shipping charges. Despite the shortened week the market will be receiving several early Christmas presents including November’s new and existing home sales data, durable goods orders, personal income and outlays, and finally December’s final consumer sentiment reading. Given the holiday many market participants will likely be away from their desks, which could cause higher than usually volatility on the back of light buying. Investors will also be paying close attention to Thursday’s jobless claims data after disappointing data last week.

On the earnings front we will be hearing from Micron (MU), Red Hat (RHT), Walgreen (WAG), and Conagra (CAG). Investors will also want to look for headlines from Iraq where it has been reported that Iran took over an oil well in the south of the country. If the situation escalates, geopolitical instability in the Middle East not only has the potential cause a spike in oil prices, but could draw investors away from risk. On oil, OPEC is scheduled to meet next week, and will likely keep production unchanged. Enjoy the holidays.

Here is the rest of this week’s US calendar:

Monday, Dec. 21

8:30 a.m. EST: November’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has been trending upwards over the preceding nine months, and should show some improvement in November from its reading of -1.08 in October.

Tuesday, Dec. 22

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number rose +0.4% compared to a drop of -1.3% a week prior.

8:30 a.m. EST: Third Quarter 2009 GDP (Risk: Neutral, Market Reaction: Moderate): I anticipate that very little will change from the BEA’s preliminary estimate of third quarter 2009 GDP at 2.8%. The preliminary estimate was down markedly from the BEA’s advanced estimate of 3.5%. The current Bloomberg consensus forecast is for a reading of 2.8%. This release should be a non-event barring any unforeseen revisions.

8:30 a.m. EST: Third Quarter Revised Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 3Q09 earnings season. However, since these profits tie into GDP growth, and do not always move lock step with individual corporations’ aggregate earnings data, the data can have an unexpected impact on growth. The original 3Q09 corporate profits release indicated profits grew at 10.6%.

8:55 a.m. EST: Redbook (Risk: Neutral, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales rose 1.5% last week on a yearly basis.

10:00 a.m. EST: November’s Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Pending home sales rose 3.7% in October, which should bode well for November’s existing home sales. Existing home sales jumped 10.1% in October, primarily due to buyers rushing contracts to take advantage of the first time home buyer tax credit prior to its original expiration in November. The supply of existing homes continued to fall to 7.0 months from 8.0 months in September. The current Bloomberg consensus forecast is for a rate of existing home sales of 6.25 million in November versus 6.10 million in October.

10:00 a.m. EST: FHFA House Price Index (Risk: Neutral, Market Reaction: Moderate): The Federal Housing Finance Agency (FHFA) monthly house price index is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s. The FHFA’s monthly purchase only index was unchanged in September, while August’s reading was revised down to -0.5% from -0.3%. The monthly index tends to be relatively volatile, but should continue to trend up in-line with the Case-Shiller home price index.

Wednesday, Dec. 23

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Applications rose 0.3% last week after rising 8.5% a week prior. Refinance applications rose modestly be 0.9%, while purchase applications fell -0.1%. A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, and have recently reduced the demand for mortgages. However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months.

8:30 a.m. EST: November’s Personal Income and Outlays (Risk: Neutral, Market Reaction: Significant): Personal income should continue to extend it gains, growing for a fifth consecutive month, while spending should also rise on stronger motor vehicle sales during November. More importantly, headline and core CPI should remain relatively tame, placing inflationary concerns on the back burner, at least for the time being. The current Bloomberg consensus forecast is for an increase in income of 0.5% (0.2% in October), and an increase in spending of 0.6% (0.7% in October), while core PCE is anticipated to rise a modest 0.1% (0.2% in October) in November.

9:55 a.m. EST: December’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): December’s preliminary consumer sentiment index jump to 73.4 from a reading of 67.4 in November. Improving market conditions and some better than anticipated labor data during the month should provide a modest bump in December’s final sentiment reading. The current Bloomberg consensus forecast is for a reading of 73.5.

10:00 a.m. EST: November’s New Home Sales (Risk: Neutral, Market Reaction: Significant): As with existing home sales, new home sales likely rose in November. The rate of new home sales in October was the highest rate since September 2008, and November’s release should be even higher. The current Bloomberg consensus forecast is for the rate of new home sales to increase to 440K from 430K a month prior.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed an unexpected decline of -3.7 million barrels versus a drop of -3.8 million barrels a week prior.

Thursday, Dec. 24

8:30 a.m. EST: November’s Durable Goods (Risk: Neutral, Market Reaction: Moderate): Durable goods orders should recover a portion of October’s -0.6% decline on the back of stronger motor vehicle sales during the month. The current Bloomberg consensus forecast is for an increment in durable goods orders of 0.5%, versus a drop of -0.6% a month prior. Unfortunately, last month’s number excluding the volatile transportation component fell -1.3%. Additionally, an unexpected jump in civilian aircraft orders last month (+50%) may have been overstated and I anticipate this could lead to a strong drop of this component in November.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose 7K last week to 480K, after rising 17K a week prior. Despite the increment in last week’s claim data the four week moving average improved to 467,500 from 473,750. Improving initial jobless claims are indicative of fewer job losses in the BLS’s monthly employment report; however, the job situation will still get worse before it gets better. The current Bloomberg consensus forecast is expecting claims to come in at 470K, a decrease of -10K from last week.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet jumped last week to US$2.218trn from US$2.169trn, due increased purchases of agency MBS. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

As the invisible hand of the market continues wrestling the imprudent hand of governments; consequences will be felt across the globe as one hand hits the table…

Government stimulus and monetary policy has undoubtedly led us out of one of the worst recessions since the Great Depression, but what impact will these policies have on the future? Many economists agree that the current growth period has been significantly bolstered by fiscal stimulus, which has failed to substantially address a lack in final demand and create what many would consider to be a sustained recovery. Let’s take a look at this chart published by Goldman Sach’s chief economist Jan Hatzius depicting his firm’s view on the medium term impact of the fiscal stimulus package on GDP:

Source: Goldman Sachs

Not pretty, especially considering there are no indications that final demand is prepared to take the lead as this recoveries growth engine. Given the nature of politics and the election cycle it makes sense for some politicians to be more concerned over short-term outcomes versus long-term consequences, at least if they want to retain their jobs. And who wants to be unemployed right now?

Funds for the government’s stimulus package do not just appear; they were borrowed. Not only were they borrowed, but they were borrowed at teaser rates subprime Vegas home buyers would have been happy with several years ago. It is my belief over the long-term the government’s soaring debt load combined with an eventual increment in rates will lead to substantially higher taxes in the US and lower growth prospects for the country. What we have done is borrow from future growth for the gains we are realizing today.

Turning to the central bank, copious amounts of liquidity have been poured into the financial system to help stave off deflation and support asset prices. These funds have not yet triggered significant inflationary concerns, because they have simply made up for a slowdown in the velocity of money. What I mean is the fed’s injections counteracted an essential halt in lending markets; making up for borrowed money that would have existed to prop prices. But, this also means that as banks turn back on the lending spicket excess liquidity in the system can quickly turn into fuel for inflation. This will force the Fed to react by withdrawing liquidity from the system, and hiking the target rate. The big question will if the fed can remove excess liquidity faster than inflation can take root, and if so will unemployment still be at uncomfortably high levels? Probably.

All of these questions will be answered in time, but I have no doubt we will be paying for today’s growth well into the future. Will it be worth the price? We can only hope.

The market will be providing a cornucopia of data this week centered on Tuesday and Wednesday, which you can mull over as you begin brining your turkeys—as an aside here’s the recipe I will be following this year. Also, I wrote an interesting column on Friday for Real Money titled ‘Talking Turkey on Agricultural Trends’ that I recommend you read.

The market will digest 15 important data releases in just three days. But here’s what you should be paying attention to; the week’s most critical data will likely come in the form of the FOMC minutes, home sales, personal income and outlays, and the first revision of third quarter GDP, which likely won’t look as rosy as the advanced estimate. On the housing front we will get the FHFA and Case Shiller Home Price Indices. The MBA mortgage application index has also been garnering more attention as purchase applications continue to plummet to 12 year lows. Looking toward the consumer, both the Conference Board’s and University of Michigan’s consumer sentiment indices are schedule for release. Finally, I should mention that on Wednesday we will be getting October’s durable goods data.

Despite the shortened week we will be hearing earnings from the final Dow Jones Industrial component, HP. In addition to HP, we can expect earnings from Medtronic, Barnes and Nobles, Borders, and John Deere. This week the Treasury will be auctioning off a record $118 billion in two-, five- and seven-year Treasury instruments, which could place some pressure on bond markets. However, so far demand for bonds, despite record issuances has remained in place, partially on the back of higher foreign demand.

Here is the rest of this week’s US calendar:

Monday, Nov. 23

8:30 a.m. EST: October’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal):The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding eight months but is expected to decline slightly in October from its reading of -0.81 in September.

10:00 a.m. EST: October’s Existing Home Sales (Risk: Neutral, Market Reaction: Significant): Existing home sales could gain some upward momentum in October following a sharp rise in September’s pending home sales index, which rose 6.1%–this index has been up for eight consecutive months. The current Bloomberg consensus forecast is for existing home sales of 5.70 million 5.57 million a month prior.

Tuesday, Nov. 24

7:45 a.m. EST: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a weekly decline of -0.1% in store sales compared to a decline of -0.1% a week prior.

8:30 a.m. EST: First Revision of 3Q09 GDP (Risk: Neutral, Market Reaction: Significant):It is likely that the BEA’s advanced 3Q09 GDP estimate of 3.5% will be revised down significantly due to a higher than anticipated trade deficit, lower non-residential investment, slower than expected inventory rebuilding, and a small markdown due to worse than anticipated personal consumption data. The current Bloomberg consensus forecast is for the 3Q09 first revision GDP growth to come in at 2.8%. This revision, especially if below the market consensus, could cause some market participants to start questioning the overall strength of the US economic recovery, however, the 4Q09 growth pace is still on pace to finish around 3.5%. Looking ahead, stronger than anticipated inventory liquidations during the quarter will likely be made up during 4Q09 and the first part of 2010 helping buoy growth. Looking further into 2010, growth should remain stable, but below trend.

8:30 a.m. EST: Third Quarter 2009 Corporate Profits (Risk: Neutral, Market Reaction: Marginal):The importance of this release is somewhat muted given its timing toward the end of the 3Q09 earnings season. However, since these profits tie into GDP growth they do not always move lock step with individual corporations’ aggregate earnings data. In 2Q09 corporate profits reportedly grew around 5.7%.

8:55 a.m. EST: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales were rose 2.0% last week on a year over year basis.

9:00 a.m. EST: September’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate):The S&P Case Shiller HPI has demonstrated four consecutive months of gains, during which it gained 5%. However, on a yearly basis both the 10 and 20 city indices are still down roughly 11%. Nevertheless, according to August’s data 19 of 20 cities reported improvements on their year over year declines. We can expect to see some continued improvement in September.

10:00 a.m. EST: November’s Consumer Confidence (Risk: Neutral, Market Reaction: Marginal):The Conference Board’s measure of consumer confidence should remain relatively steady after plunging to 47.7 from 53.4 in October. Last month’s sharp decline was mostly due to concerns over the labor market. The Bloomberg consensus forecast for November’s release is a marginal decline to 47.0, but I should mention that individual forecasts range from a low of 44.0 to a high of 47.0

10:00 a.m. EST: Third Quarter 2009 and September’s Monthly FHFA Home Price Index (Risk: Neutral, Market Reaction: Marginal):The Federal Housing Finance Agency (FHFA) monthly/quarterly house price index is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s. According to the FHFA’s second quarter report housing prices fell 0.7%on a quarter over a quarter basis, or 6.1% on a yearly basis. The FHFA’s monthly price index fell for the first time since April in August by -0.3%, but should turn positive again in September.

10:00 a.m. EST: November’s Richmond Fed Manufacturing Index (Risk: Neutral, Market Reaction: Marginal):The Richmond Fed manufacturing activity index has been in positive territory since May, but showed some signs of weakness in October falling from 14 to 7. The new orders index, which tends to be a forward looking component, has fallen for three straight months this could potentially place some additional downward pressure on the headline index. Aggregate changes in the Fed district’s manufacturing surveys could be a good indicator not only for the country’s economic health, but also ISM performance.

10:00 a.m. EST: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal):The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report, “[Last] month’s, institutional investors have paused to take stock,” commented Froot. “The Global Index reading of 108.4 remains comfortably above the neutral level of 100 for a seventh consecutive month, but underlying flows have been tempered somewhat from the very strong levels of July and August. While the US earnings season has been relatively robust so far, the number of positive surprises that have been observed in employment, retail sales, manufacturing and trade figures has diminished considerably, and this may be influencing investor risk appetite.”

2:00 p.m. EST: FOMC Minutes (Risk: Neutral, Market Reaction: Marginal):Despite only modest changes in the FOMC’s statement, analysts will likely be looking very closely at the motivation behind these nuances. In any case, it is unlikely these minutes will provide any groundbreaking new information for market participants.

Wednesday, Nov. 25

7:00 a.m. EST: MBA Mortgage Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Applications fell 2.5% last week after gaining 3.2% a week prior. Unlike the week prior which saw a precipitous drop in purchase applications while refinance applications remained positive; last week’s data was negative all around, despite lower interest rates. Refinance applications dropped 1.4%, while purchase applications fell and additional which 4.7%. A wave of buyers, filling out multiple mortgage applications, that were looking to take advantage of the first time home buyer tax credit–originally set to expire on Nov. 30th–have already completed their transactions, thereby reducing the current demand for mortgages. However, the recent extension of the first time home buyer tax credit should eventually bring a new set of buyers into the market, which could help support the purchase index over the coming months–don’t forget buying a house can be a long drawn out process. Nevertheless, increased lending standards for FHA loans, due to the organizations worsening finances, could place some headwinds on the purchase index’s recovery.

8:30 a.m. EST: October’s Durable Goods Orders (Risk: Neutral, Market Reaction: Significant):Durable goods should experience a modest increase in October after gaining 1.4% in September on the back of relatively strong machinery and transportation equipment orders. Weakness in October for civilian aircraft orders should place some pressure on index, with the current Bloomberg consensus forecast expecting a rise of only 0.5%. It will also be important to keep an eye on the less volatile ex-transport index.

8:30 a.m. EST: October’s Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant):An increment in auto purchases—after dropping sharply upon the expiration of the ‘Cash for Clunkers’ program–should help bolster consumer spending, which fell -0.5% in September. This release will be important because it will be the first look into the consumer’s fourth quarter spending habits leading into the holiday season. Personal income is expected to show a modest gain for the month, but still remain down around -2% on a year over year basis. The current Bloomberg consensus forecast is for an increment in spending of 0.5%, and an increase in income of 0.2%. At the same time, analysts are anticipating a modest jump in Core PCE of 0.2% after rising 0.1% in September.

8:30 a.m. EST: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims remain unchanged last week at 505K, after falling 12K a week prior. I should note there is again the potential for initial jobless claims slip below the psychological barrier of 500K this week, which could have the potential of at least temporarily influence trading. Nevertheless, despite second derivative improvements these levels still indicate continued losses for monthly payrolls—albeit at a slower pace—coupled further deterioration to the unemployment rate, which has already exceeded 10%. The current Bloomberg consensus forecast is expecting claims to come in at 504K, essentially unchanged from last week.

9:55 a.m. EST: November’s Final Consumer Sentiment (Risk: Neutral, Market Reaction: Significant):After a disappointing preliminary November release of 66.0, consumer sentiment will likely finish the month up only marginally to what the Bloomberg consensus forecast anticipates will be a level of 67.0. Like the Conference Board’s measure a weakening job market—albeit at a slower pace—continues to weigh on consumer attitudes. Also interesting to note is the fact that in every month since June final number has finished higher than the preliminary release.

10:00 a.m. EST: October’s New Home Sales (Risk: Neutral, Market Reaction: Significant):Like existing home sales, new home sales should continue to climb in October, but at a more modest pace. The primary reason behind this is likely the fact that existing home sales can be bought at a more attractive price compared to their new home counterparts. The current Bloomberg consensus forecast is for the rate of new home sales to increase to 410K from 402K a month prior.

10:30 a.m. EST: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed a decline of -0.9 million barrels versus a gain of 1.8 million barrels a week prior.

4:30 p.m. EST: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet ballooned last week to US$2.192trn from US$2.117trn a week prior on the back of higher agency and mortgage-backed securities holdings. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

The BEA’s advance estimate of 3Q GDP indicates that the economy grew at an for the first time since 2Q08 at annualized 3.5% pace. The most surprising data from the report was a relatively robust increase in personal consumption which grew at 3.4% during the quarter–contributing 2.4% to the quarters 3.5% growth. The primary driven behind consumption’s robust performance was likely fiscal stimulus, including the US government’s ‘Cash for Clunkers’ program. As expected inventories declined by only -USD130.8bn compared to -USD160.2bn, which contributed 0.9% of the quarter’s growth. Also of interest is the fact that residential investment for the first time since 4Q05 showed positive growth, gaining 23.3%. But, given the temporary driver’s behind 3Q’s better than anticipated GDP report, and the numerous headwinds that remain in place for consumers, GDP growth should begin to diminish in the quarters ahead and eventually level off below trend–2.0%. Nevertheless, despite what will likely turn into sluggish growth next year, will still be positive and not negative as we have experienced over the last several quarters.

This week’s most important economic data will likely come in the form of third quarter 2009’s advanced estimate of GDP, which should put an end to four consecutive quarters of declines. The U.S. government’s ‘Cash for Clunkers’ program during the quarter should help to boost the personal consumption component of GDP, while inventories declining at a slower pace should provide a boost for that component. Inventories do not need to turn positive to add to GDP they just need to fall at a slower pace. Inventories are the difference between production and sales. To highlight this point here is an excerpt from a recent Bank of America research report, “If my factory sells 10 wiggits per month, but is producing only 6 per month, then inventories fall by 4 per month. If sales stay at 10 and I want to slow the inventory depletion to 2 per month I need to raise production to 8.”

Also of note this week is September’s personal income and outlay data on Friday, which should show only a modest increase in income, while consumption should be down more significantly on the back of reduced auto sales stemming from the expiration of the U.S. government’s ‘Cash for Clunkers’ program a month earlier. Other indicators of note include Tuesday’s S&P Case Shiller HPI and consumer confidence, Wednesday’s durable goods orders and new home sales data, Thursday’s jobless claims release, and finally the Chicago PMI on Friday.

The coming week also brings the market its fair share of earnings releases with more than 25% of the S&P500 and four Dow components reporting. Some major companies include Exxon Mobile, Chevron, Procter & Gamble, Visa, General Dynamics, Met Life, and Verizon to name a few. Fed speak is relatively light this week ahead of the November 3rd through 4th FOMC meeting.

Here is the rest of this week’s US calendar:

Monday, Oct. 26

8:30 a.m. EDT: September’s Chicago Fed National Activity Index (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding seven months and is expected to improve again in September from its reading of -0.9 in August.

10:30 a.m. EDT: October’s Dallas Fed’s Texas Manufacturing Outlook (Risk: Neutral, Market Reaction: Marginal): This index is not highly publicized, and tracks manufacturing activity within the Dallas Feds jurisdiction. Last month’s survey suggested “factory activity showed the first signs of bottoming out in September, according to the business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of current manufacturing activity, came in close to zero as the number of companies seeing increases and decreases was nearly equal.”

Tuesday, Oct. 27

7:45 a.m. EDT: ICSC-Goldman Store Sales (Risk: Neutral, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a weekly increment of 0.2% in store sales compared to a gain of 0.6% a week prior.

8:55 a.m. EDT: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales were rose 0.5% last week on a year over year basis.

9:00 a.m. EDT: August’s S&P Case Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI has demonstrated three consecutive months of gains, but could face some pressure in August after a disappointing FHFA HPI release for the month. Only three components (Detroit, Las Vegas & Seattle) of the 20 city index demonstrated monthly declines in July.

10:00 a.m. EDT: October’s Consumer Confidence (Risk: Downside, Market Reaction: Significant): Higher energy prices and continued uncertainty over the economic outlook could place some continued pressure on the Conference Board’s measure of consumer confidence. The current Bloomberg consensus forecast is for a reading of 54.0, compared to 53.1 in September.

10:00 a.m. EDT: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report, “After eight consecutive increases in Global Investor Confidence, which took the Index from an all-time low of 82.1 during the financial crisis to a five-year high of 122.8, institutional investors took a breather this month and consolidated their holdings of risky assets,” commented Froot. “This month’s reading of 118.1 is still comfortably in the range associated with the accumulation of risk exposures, as a reading of 100 signifies neither accumulation nor decumulation. However, there is a recognition that a portion of the recent rise in global equity prices can be attributed to liquidity expansion rather than fundamental opportunities. Institutional investors are pausing to assess this balance.”

10:00 a.m. EDT: Richmond Fed’s Survey of Manufacturing Activity (Risk: Neutral, Market Reaction: Marginal): The Richmond Fed manufacturing activity index has been in positive territory since May, and should remain there this month based on what has been a strong new orders component. According to the survey in August, manufacturing activity rose signaling a solid third quarter, while the new orders and employment components both experienced growth, and the price index slipped.

Wednesday, Oct. 28

7:00 a.m. EDT: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week’s data declined 13.7% after falling 1.8% a week prior due to climbing interest rates. The refinance index fell 16.8%, while the purchase index fell 7.6%. Refinances made up 65.0% of all applications last week.

8:30 a.m. EDT: September’s Durable Goods Orders (Risk: Downside, Market Reaction: Significant): A drop in aircraft orders from Boeing could place some negative pressure on the index, while an increment in auto orders for the month could help to offset some of the decline. The current Bloomberg consensus forecast is for an increase of 1.5%, after rallying 2.6% in August. It will be important to monitor ex-transport orders, which tend to be less volatile, and were flat in August.

10:00 a.m. EDT: September’s New Home Sales (Risk: Neutral, Market Reaction: Significant): a 0.5% increment in housing starts for September likely doesn’t bode well for the month’s new home sales data. Nevertheless, the index should continue to rise, albeit at a slower pace. The current Bloomberg consensus forecast is for an increase to a seasonally adjusted annual rate of 440K, compared to 429K in August. Rising interests rates and the expected expiration of the first time home buyer tax credit may place some downward pressure on housing’s recovery.

10:30 a.m. EDT: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed a rise of 1.3 million barrels versus an increment of 0.4 million barrels a week prior.

Thursday, Oct. 29

8:30 a.m. EDT: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims rose last week by 11K to 531K, after falling 10K a week prior. Despite second derivative improvements these numbers still indicate further deterioration to upcoming payroll numbers, and the unemployment rate, which is very likely to exceed 10% in the coming months. The current Bloomberg consensus forecast is expecting a pullback in this week’s initial claims data to 525K from 531K.

8:30 a.m. EDT: 3Q09 Advanced Estimate of GDP (Risk: Upside, Market Reaction: Significant): Easy monetary and fiscal policies coupled with a turn in the inventory cycle should bring GDP growth into positive territory for the first time five quarters. The current Bloomberg consensus forecast is for GDP growth of 3.0%. The big test will be whether or not increments in final demand will be large enough to offset the eventual diminishing effects of fiscal and monetary policy over the coming quarters.

10:00 a.m. EDT: October’s Kansas City Fed’s Survey of Manufacturers (Risk: Neutral, Market Reaction: Marginal): According to the most recent survey, “Tenth District manufacturing activity rebounded in September as firms’ orders picked up slightly, and expectations mostly held steady with last month’s positive outlook. Most price indexes in the survey inched higher, but still remained at fairly low levels.” I anticipate this trend will continue to August.

4:30 p.m. EDT: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet again declined last week to US$2.183trn from US$2.174trn a week prior. The main catalyst behind the rise was an increase in the holdings of Treasury and mortgage bonds. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

Friday, Oct.30

8:30 a.m. EDT: September’s Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): Personal income likely experienced a modest gain during the month with the current Bloomberg consensus forecast indicating a gain of 0.0%. However, personal consumption during the month likely took a much larger hit primarily due to a reduction in car sales stemming from the expiration of the U.S. government’s ‘Cash for Clunkers’ program. The current Bloomberg consensus forecast is for a decline of -0.5% for personal consumption.

8:30 a.m. EDT: Employment Cost Index (Risk: Neutral, Market Reaction: Marginal): The current Bloomberg consensus forecast for the ECI is a quarter over quarter change of 0.5%, compared to a second quarter increment of 0.4%. This index should continue to confirm that over the near-term the risk of deflation continues to outweigh that of inflation. Weakness in the labor market combined with cost cutting, affecting benefits, should continue to place pressure on this index. This index includes wages, salaries, and benefits.

*9:45 a.m. EDT: October’s Chicago PMI (Risk: Neutral, Market Reaction: Moderate): The Chicago PMI measures business activity in the mid-West, and is released one business day prior to the national ISM index. *It is also important to note that the Chicago PMI is released several minutes early to subscribers of the service, so you could see reaction to the release starting at 9:42AM. This index is considered a forward looking indicator to the national ISM, so any large unexpected shifts in the Chicago PMI could have an impact on trading. The current Bloomberg consensus forecast is for a reading of 48.5, versus to 46.1 in September. This index could face some negative pressure in October as its new orders index fell below 50 in September. This index covers both the manufacturing and non-manufacturing sectors.

9:55 a.m. EDT: October’s Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): After a preliminary reading of 69.4 earlier this month—versus a final reading of 73.5 for September—, the Bloomberg consensus survey is anticipating a final reading of 70.0. Looking back since June the preliminary number has been consistently revised up by the end of the month.

There’s no doubt this week’s most important release will be Friday’s employment report, which is expected to show a decline in payrolls of -170K with an unemployment rate of 9.8%. This week could prove critical as markets try to regain some traction after several negative surprises last week, including lower than anticipated existing home sales and durable goods orders. However, looking at the docket this week (and possibly the months ahead) may hold slightly more downside risk than upside as the effects of the Cash for Clunkers program continues to fade, and the first time home buyer credit ticks closer to expiration come the end of November. Other heavy hitters to watch this week include Tuesday’s consumer confidence report, Wednesday’s Chicago PMI release, and jobless claims, ISM, and personal income and outlays on Thursday.

Ending on a more positive note, the US is expected to return to positive GDP growth starting in 3Q09 on the back of improvements in the inventory cycle stemming from a slower rate of destocking. However, the magnitude and longevity of this return to growth will be strongly dependent on consumer demand returning to the market.

Here is the rest of this week’s US calendar:

Monday September 28th:

8:30AM: Chicago Fed National Activity Index for July (Risk: Neutral, Market Reaction: Marginal): The CFNAI is an index consisting of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index, the three-month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding six months and is expected to improve again in August from its reading of -1.7 in July.

7:45AM: ICSC-Goldman Store Sales (Risk: Negative, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a weekly decline of -2.0% in store sales compared to an increase of +0.0% a week prior.

8:55AM: Redbook (Risk: Negative, Market Reaction: Marginal): The Redbook is a weekly measurement of chain stores, discounters, and department store sales. This indicator tends to be less significant than the ICSC-Goldman Store Sales in forecasting retail sales. According to the Redbook store sales were down -2.6% last week on a year over year basis.

9:00AM: S&P Case-Shiller Home Price Index (Risk: Neutral, Market Reaction: Moderate): The Case Shiller HPI has shown some signs of life rising 1.4% in June with only Las Vegas and Detroit experiencing monthly declines. But, on a year over year basis both the Case-Shiller 10 and 20 city composite indices are still down over 15%. Nevertheless, the index will likely show a modest monthly improvement in July on the back of relatively strong housing activity.

9:50AM: Richard Fisher, Dallas Federal Reserve Bank President, gives a speech on the state of the economy.

10:00AM: Consumer Confidence (Risk: Negative, Market Reaction: Significant): Recent advances in other consumer confidence indicators, including Reuters/UMich Consumer Sentiment Index, should help add some upward momentum to the Conference Board’s September Consumer Confidence number. A weak labor market is still a big concern for consumers, however, indications that the economy may be improving will likely not go unnoticed. The current Bloomberg consensus forecast is for an increase to 57.0 from August’s number of 54.1.

10:00AM: State Street Investor Confidence Index (Risk: Neutral, Market Reaction: Marginal): The State Street Investor’s Confidence Index measures investors’ tolerance to risk. According to the State Street report, “[August’s] increase represents the eighth consecutive improvement in Global Investor Confidence, and places the risk appetite of institutional investors firmly in the range that is associated with accumulation of risk exposures,” They went on to say. “At the same time, the rate of increase in the Index has moderated relative to some months ago, suggesting that institutions are being somewhat selective in their allocations.”

7:00PM: Charles Plosser, Philadelphia Federal Reserve Bank President, is speaking on Fed’s role in the economy at the Lehigh Valley Economic Outlook

Wednesday September 30th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week’s data showed an increment of 12.8% on higher refinancing activity stemming from mortgages rates slipping below 5%. The refinance index rose 17.4%, while the purchase index rising 5.6%.Refinances made up 63.8% of all applications last week.

8:15AM: ADP Employment Report (Risk: Neutral, Market Reaction: Moderate): The ADP Employment report is considered a good window into Friday’s critical payroll number. Last month, however, the ADP reported indicated job losses of -298K, while payrolls declined by only -216K.

8:30AM: GDP (Risk: Neutral, Market Reaction: Moderate): According to the Bloomberg consensus survey,the BEA’s final estimate of 2Q09 GDP is likely to come in at -1.2%, compared to the preliminary estimate of -1.0%. The culprits behind the anticipated slippage are faster inventory liquidation and weaker net exports. GDP is widely expected to turn positive in 3Q09.

9:45AM: Chicago PMI (Risk: Negative, Market Reaction: Moderate): This Chicago PMI measures business activity in the mid-West, and is released one day prior to the national ISM index. Adverse effects from strong seasonal adjustment factors could cause this index to surprise on the downside. The current Bloomberg consensus forecast is for an increase to 52.0 in September versus 50.0 in August. It will be important to pay close attention to any significant changes to the new orders, employment, and prices paid indices. The new orders index broke above 50 in August for the first time in 11 months.

10:30AM: EIA Petroleum Status Report (Risk: Neutral, Market Reaction: Moderate): This report measures US domestic petroleum inventories. Large unanticipated swings in this index could have a significant impact on energy prices. Last week this report showed a rise of 2.8mn barrels versus a decline of -4.7mn barrels a week prior.

Thursday October 1st:

Motor Vehicle Sales (Risk: Negative, Market Reaction: Moderate): Auto sales will likely face a sharp pullback in September, no longer benefitting from the US government’s Cash for Clunkers program. The current Bloomberg consensus is forecasting 8.0mn domestic sales for September, versus a 10.1mn annual pace in August. Despite the precipitous drop, the y/y decline should be less now than it was prior to the Cash for Clunkers program, which is somewhat positive.

7:30AM: Challenger Job-Cut Report (Risk: Neutral, Market Reaction: Moderate): This index measures the number of announced corporate mass layoffs, but does not take into account the timing of the actual layoffs. Meaning layoffs could be announced in September, but not take place until October, or may even take place slowly over an extended period of time.

8:30AM: Personal Income & Outlays (Risk: Neutral, Market Reaction: Significant): The temporaneous effects of the Cash for Clunkers program have likely lead to a significant increment in consumer spending for August, with the Bloomberg consensus forecast anticipating a 1.1% monthly increase, higher energy prices may have also had a marginal impact. Personal income will likely turn slightly positive for the month on the back of higher average wages; the current Bloomberg consensus forecast is for a monthly increment of 0.1% versus no change last month. The core PCE is expected to rise 0.1%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims fell last week by 21K to 530K. Initial claims should continue to demonstrate marginal improvements over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time. In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 480K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward. The current Bloomberg consensus for this week’s initial claims release is 537K. The anticipated increment for claims may still be due to seasonal adjustment effects stemming from the later than usual Labor Day Holiday.

10:00AM: ISM Manufacturing Index (Risk: Neutral, Market Reaction: Significant): In August the ISM rose for the 8th consecutive month finishing August at 52.9, this was the index’s first reading above the breakeven point of 50 since January 2008. Looking to September, the current Bloomberg consensus forecast is for a reading of 53.5, which I personally believe may be slightly optimistic. Nevertheless, the new orders index did jump last month to 64.9 from 55.3. With that in mind it will be very important to pay close attention to September’s new orders and employment index, which could help set the tone for the overall report.

10:00AM: Construction Spending (Risk: Negative, Market Reaction: Moderate): According to the Bloomberg consensus survey construction spending is expected to fall -0.1% in August versus a decline of -0.2% in July. Non-residential construction should continue placing the strongest downward pressure on the overall index, while residential construction spending also has the potential to move into negative territory after gaining 2.3% in July and 0.4% in June on a strengthening housing market.

10:00AM: Pending Home Sales (Risk: Neutral, Market Reaction: Moderate): Pending home sales rose 3.2% in June, realizing its sixth consecutive monthly gain. However, pending home sales could start facing some pressure over the coming months as the first time home buyer tax credit is presently set to expire on November 30th.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. The Fed’s balance sheet rose again last week to US$2.141trn from US$2.125trn a week prior. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to help moderate long-term interest rates.

8:30AM: Employment Situation Report (Risk: Neutral, Market Reaction: Very Significant): The current Bloomberg consensus forecast is for a decline in payrolls of -170K for September, compared to a decline of -216K in August. However, it is important to keep in mind that a later than usual Labor Day could lead to some discrepancies in this month’s data. Nevertheless, we should see an improvement from last month’s declines. According to the Bloomberg consensus forecast the unemployment rate is expected to rise to 9.8% from 9.7%.

10:00AM: Factory Orders (Risk: Negative, Market Reaction: Moderate): The current Bloomberg consensus forecast is for an increment in factory orders of 1.0% in August, versus +1.3% in July. However, unexpected weakness in last week’s durable goods release on Friday may cause some revisions to this number.

US 2Q09 GDP remained unchanged from the advance reading of -1.0%, a month earlier. The consensus estimate for the revision was -1.5%. Despite what was no change in the headline number, there were revisions to the data behind it with exports and consumption being revised up, while inventories and non-residential spending were revised down. Overall weakness in the 2Q09 GDP reading can be attributed to private inventory investment, nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment, and exports. Higher government spending and a decrease in imports have been the biggest positive contributing factor to GDP growth. The improvement from 1Q09’s performance was due to smaller decreases in nonresidential fixed investment and in exports, an increment in federal government spending, smaller declines in private inventory investment and residential fixed investment, and a rise in state and local government spending. (see table below)

Initial jobless claims fell by 10K to 570K, compared to a consensus forecast of 550K. Continuing claims fell by 119K to 6.13mn. Claims data should continue to improve over the months ahead, but will remain well above comfortable levels for at least the remainder of this year, as the unemployment rate will likely exceed 10%. Using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

Corporate profits were up 5.7% on a quarterly basis. In total corporate profits finished the quarter at an annualized 1US$.050trn from US$0.976 trn the prior quarter.

This week looks to be another whirlwind week of significant economic releases coming from the consumer and housing sectors, along with an update on 2Q09 GDP growth. In addition to this, Monday will see the end of the US government’s highly successful ‘Cash for Clunkers’ program, which over the course of its existence has positively impacted numerous economic indicators. These week’s data could help support the recent rally, or build a stronger case for the bears. Housing related data starts on Tuesday with the release of the Case-Shiller home price index, followed an hour later by the FHFA home price index. This week’s housing announcements conclude on Wednesday with the release of new home sales, which has the potential to beat analysts’ forecasts. Turning to the consumer, the Conference Board’s Consumer Confidence Index will be released on Tuesday, and is expected to show marginal gains. This report will be followed up on Friday by the final release of the Reuters/University of Michigan consumer sentiment report, which should experience a marginal upward revision. This week’s other notable releases include durable goods orders on Wednesday, the preliminary estimate of 2Q09 GDP on Thursday, and Personal Income and Outlays on Friday. Here’s the rest of the calendar:

Monday August 24th:

8:30AM: Chicago Fed National Activity Index (CFNAI-MA3) (Risk: Downward, Market Reaction: Marginal): The CFNAI is an index that consists of 85 separate data sets designed to encompass national economic activity and inflationary pressure. A reading of 0 indicates the economy is growing at the historical trend while a negative or positive result indicates the economy is growing below or above its historical average, respectively. Given the volatile nature of this index the three month moving average is typically quoted. This index remains somewhat obscure in the mainstream media and is likely to have a minimal impact on trading. This index has shown improvements over the preceding five months, and is expected to improve again in July from its reading of -2.1 in June.

Tuesday August 25th:

7:45AM: ICSC-Goldman Store Sales (Risk: Downward, Market Reaction: Marginal): This weekly index tracks aggregate store sales across major US retailers, accounting for roughly 10% of total retail sales. Given recent data supporting an increasing US saving rates and a worsening employment situation, this index could face some downward pressure. Last week’s number indicated a decline of -0.9% in store sales compared to no change the previous week.

9:00AM: S&P Case-Shiller House Price Index (Risk: Neutral, Market Reaction: Moderate): The S&P Case Shiller HPI is reported monthly, but on a two month lag. May’s report showed a slight increment in 7 of the 10 metropolitan areas covered by the report on a monthly basis, with Los Angeles, Miami, and Las Vegas still showing declines, albeit at a lower rate. I anticipate July’s release will reaffirm that trend, with a continued slowdown in the rate of decline for home prices on a yearly basis . But, we would still need to see significant improvements in those regions, which were the hardest hit by the drop in prices that include Las Vegas, Miami, and San Francisco before we can see a strong overall recovery.

10:00AM: Consumer Confidence (Risk: Neutral, Market Reaction: Significant): The Conference Board’s Consumer Confidence Index could improve marginally in August after July’s reading of 46.6. The current Bloomberg Consensus forecast is for a reading in August of 48.0. However, a lower than anticipated University of Michigan consumer sentiment index, released earlier this month, could place some downward pressure on this release. Weakness in the labor market continues to weigh heavily on consumer confidence indices, but has been slightly offset by positive equity performance.

10:00AM: The Federal Housing Finance Agency (FHFA) House Price Index (Risk: Neutral, Market Reaction: Significant): The Federal Housing Finance Agency (FHFA) House Price Index (HPI) is compiled by using loan data provided by Fannie Mae and Freddie Mac, which means all the data within the index consists of conventional mortgages within the limitations of the GSE’s. Investor’s will be focusing on the June purchase only index, which in May experienced a monthly gain of 0.9%, compared to a decline of -0.3% in April. On a yearly basis the HPI was down 5.6% in May. The monthly index tends to be relatively volatile, but should continue to trend up over the coming months with the Case-Shiller home price index.

Wednesday August 26th:

7:00AM: MBA Purchase Applications (Risk: Neutral, Market Reaction: Marginal): This index, which tracks new mortgage applications tends to be a reasonable forward looking indicator for home sales, but issues including customers filling out numerous applications could skew the index. Last week the overall index increased 5.6%; while the refinance index rose 6.9% and the purchase index rose 3.9% on the back of relatively low mortgage rates and declining home prices.

8:30AM: Durable Goods Orders (Risk: Upside, Market Reaction: Significant): Increased motor vehicle and commercial aircraft orders in June should help provide some upward momentum for durable goods orders in July. The current Bloomberg consensus forecast is for an increment of 2.5%, compared to the previous month’s decline of 2.2%. Thanks to the US government’s ‘Cash for Clunkers’ program auto orders could see a double digit gain during the month, which hasn’t happened since 2003. But, the program is scheduled to end Monday (8/24).

10:00AM: New Home Sales (Risk: Upside, Market Reaction: Significant): On the back of a much higher than anticipated level of existing home sales, new home sales should encounter some upward momentum in July. The current Bloomberg consensus is for a sales rate of 390K units, compared to last month’s reading of 384K units. Recent increments in the NAHB’s homebuilder index have led to an increase in the number of housing starts and permits, which could indicate a bottom for residential real estate.

10:30AM: EIA Petroleum Status Report(Risk: Neutral, Market Reaction: Moderate): This report indicates domestic petroleum inventories, which could have a significant impact on the energy sector. Last week this report showed an unexpected decrease in inventories of -8.4mn barrels after rising 1.1mn a week prior.

8:30AM: GDP (Risk: Downside, Market Reaction: Significant): The preliminary estimate of 2Q09 GDP will likely be revised downward from the advance estimate of -1.0%. The current Bloomberg consensus is for a revision to -1.5%. The adjustment will come from negative revisions to inventory investment, business fixed investment, and personal consumption. These will be marginally offset by small positive adjustments to government spending and net exports. The GDP price index will likely remain unchanged at 0.2%.

8:30AM: Jobless Claims (Risk: Neutral, Market Reaction: Significant): Initial claims unexpectedly rose last week by 18K to 576K. Despite the increments experienced over the past two weeks, claims should marginally improve over the coming months as weakness in the labor market slowly abates. But, make no mistake about it these levels are still uncomfortably high, and will continue to adversely impact the US payroll data for some time. The current Bloomberg consensus for this week’s initial claims number is 550K. In fact using a simple regression analysis claims at their current levels would indicate a decline in payrolls of roughly 500K, however, recently this model has been exaggerating the actual effect on payrolls, but nevertheless is a cause for concern going forward.

8:30AM: Corporate Profits (Risk: Neutral, Market Reaction: Marginal): The importance of this release is somewhat muted given its timing toward the end of the 2Q09 earnings season. However, since these profits tie into GDP growth they do not always move lock step with individual corporations’ aggregate earnings data. In 1Q09 corporate profits reportedly grew around 4%, this positive trend will likely continue.

4:30PM: Fed Balance Sheet & Money Supply (Risk: Neutral, Market Reaction: Marginal): Since the Fed’s shift to quantitative easing, the balance sheet has become one method to measure to the Fed’s effectiveness. The market will pay close attention to the reserve bank credit component, which measures factors supplying providing reserves into the banking system. Last week the Fed’s balance sheet rose to US$2.037trn from US$1.999trn a week prior. The fed’s balance sheet has slowly been shifting away from emergency lending facilities to Treasuries, agency debt, and mortgage-backed securities to helping to control interest rates.

5:00PM: James Bullard, St. Louis Federal Reserve Bank President, speaks to the University of Arkansas MBA program.

Friday August 28th:

8:30AM: Personal Income and Outlays (Risk: Neutral, Market Reaction: Significant): Personal income may see a marginal improvement in July supported by a modest increment in wage and salary income. The current Bloomberg consensus forecast is for an increment in personal income of 0.1%, compared to June’s dismal reading of -1.3%. Despite the government’s ‘Cash for Clunkers’ program, consumer spending is unlikely to experience any significant gains, as the labor market continues to deteriorate. The current Bloomberg consensus for consumer spending is a monthly increment of 0.3%, compared to June’s reading of 0.4%.

9:55AM: Consumer Sentiment (Risk: Neutral, Market Reaction: Significant): Considering recent positive financial and economic news, the Reuters/University of Michigan preliminary consumer sentiment number, released earlier this month, will likely be revised up marginally. The current Bloomberg consensus forecast is for a reading of 64.0, compared to the preliminary reading of 63.2. But, this is still below July’s final reading of 66.0.

Contact Me:

Michael.McDonough@fiateconomics.com
Michael is an economist/strategist who has worked from Wall Street to Hong Kong primarily focusing on the U.S. and emerging markets. He has also written several columns. More

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